We are entering bear market apathy. SBF has been arrested and charged with fraud and all sorts of other heinous crimes. CZ has faced a mini bank run and been hit with $5+ Billion in withdrawals in 48 hours. And I don't think I was alone when I felt like all I could do was shrug. We've been through so much already, what's another disgraced billionaire? The market is numb, and the doldrums are setting in.
You can see it in ETH rates. The ETH stake rate is all the way down to 4.6%, lower on average than any time since the merge in September of this year. For the uninitiated, ETH staking yields correlate very strongly to overall network activity. High gas prices increase yields for stakers as does high trading activity on the network because stakers earn extra yield from MEV. Periods of market turmoil like the time surrounding the collapse of FTX produce the highest rewards for ETH stakers because they earn high gas fees + MEV from all the on-chain trading activity.
It's unfortunate that we don't yet have liquid ETH staking derivatives markets that could allow users to bet on implied future staking rates. Notional's current Balancer/Aura vault does allow you to get some leverage long risk on the ETH staking rate, but that vault has a lot else going on so it's not a clean bet. We do intend on rolling this out in the future, and I'm interested to see where the implied staking rate comes out.
My feeling is that given the asymmetric nature of the risk/reward opportunity it's going to generally be more attractive to bet that the staking rate will go up (if it goes up it can go really high, whereas if it goes down it won't go down very much). So I think that it will probably be pretty common to see that the implied future staking rate is higher than the current staking rate. It should be interesting. I'll have to brush up on my ETH stake rate forecast modelling. What better way to spend some free time in the bear market.
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